The past days, I’ve been writing about life insurance. It is one of the first finance pillars especially if you have a family and kids relying on you. I bet that 95% of OFWs have family, kids or relatives to support back home.
In this article, I bring together 6 Life Insurance Principles phrased in questions that OFW has regarding Life Insurance:
- To get or not to get life insurance?
- What kind of life insurance?
- How much life insurance?
- How long a Term Life Insurance?
- At which country should I get life insurance?
- What else to consider when shopping for Term Life Insurance?
Read on and feel free to clarify or discuss the Life Insurance Principles below. Mabuhay!
1.) To get or not to get life insurance?
Life insurance will give your dependents a fund to help them financially in the event that you die early. This fund is called the “Death Benefit“.
Do get if …
If you are an OFW working abroad sending money back home to your family, you MUST get life insurance. This is applicable to 95% of OFWs.
You don’t want to leave your family financially vulnerable upon your death, right? Get life insurance.
Don’t get if …
If you are single with nobody to support but yourself, do not buy life insurance. You are better off saving and investing the money.
Same goes for married couples who both work but have no kids. Better for couples like this to save and invest their money. If one spouse dies early, the other spouse can rely on him/herself to survive.
Last year, I was offered by three different companies life insurance. I was attracted to the offers because there was an investment component where my annual premium goes to an investment that earns for me. I didn’t buy the life insurance (for personal reasons). I realized later that it was the right move to not get life insurance at this time. I do not have any dependents who will become financially vulnerable if I died today.
Bottom-line: If you have dependents who rely on you for their survival, you must get life insurance. Dependents would be your spouse, children OR retired parents who rely on you for sustenance and will become vulnerable if you pass away unexpectedly.
2.) What kind of life insurance?
There are two basic forms of life insurance: Term Life Insurance and Permanent Life Insurance
Term Life Insurance – It protects you for a specific number of years (a term) typically from one, 5, 10 or 20 years. When the term runs out, you can usually renew the policy and begin another term.
If you die, the insurance company will pay out a specified amount. This payment is called the death benefit.
The main characteristics of term life insurance:
- Temporary insurance protection
- Low cost
- No cash value
- Usually renewable
- Sometimes convertible to permanent life insurance
Permanent Life Insurance also called Cash value life insurance – the insurance company takes your annual premium, deducts sales and administrative charges, the cost of death protection and a margin of profit. The remainder goes into a kind of savings account for you, generally called your cash value.
The most common forms of cash value policies are classified depending on where the cash value is placed.
- Whole life – Insurance company invests your cash value in bonds and various bond-like investments.
- Universal life – Insurance company invests your cash value in bonds and various bond-like investments. Universal life insurance was created to provide more flexibility than whole life insurance by allowing the policy owner to shift money between the insurance and savings components of the policy.
- Variable life – insurance company provides you with a variety of mutual fund-like investments to choose from, and you decide how to invest the cash value.
The main characteristics of permanent life insurance:
- Permanent insurance protection
- More expensive to own
- Builds cash value
- Loans are permitted against the policy
- Level premiums
Bottom-line: Term Insurance is the better choice in most OFW cases. Term insurance is cheaper and addresses the most common needs of the insurance owner and beneficiaries. Ask about Term Insurance first and determine if it addresses your needs.
Permanent life insurance is loaded with agents commissions which makes it more expensive. Don’t be surprised if your agent tries to sell you the permanent life insurance – they earn more from selling this product. In turn, that means less of your money goes to paying for your life insurance.
3.) How much life insurance?
Enough so that if you die early, your dependents receive an amount 10x your annual expenses. This fund is called a “Death Benefit”.
Why 10x? Because with this principal, your spouse can invest the death benefit in a facility that will earn 10% p.a. and receive interest equivalent to your annual expenses.
If you do not have enough cash at hand to get life insurance to cover you by 10x, get as big a life insurance you can get now. When you’ve saved up enough, you can get a second insurance coverage that will add up to the first until you are covered up to 10x of your annual expenses.
4.) How long a Term Life Insurance?
Keep in mind that your life-insurance is meant to protect your family. If you are a young parent in his 20’s/30’s with kids under 5 years old, get 15-25 years term life insurance to protect your children until they reach working age.
If you are in your 40’s with teenage kids who will finish college within the next 10 years, then just get a 10-year term. You have the option to get another policy if needed when this current term ends.
Bottom-line: Get a term to protect your family at the most vulnerable phases of your family life, i.e. when kids are growing up, still studying and unemployed.
5.) At which country should I get life insurance?
This will be a common question of OFWs.
Quick answer: Get life-insurance in the country where your beneficiaries will settle in the event of your death.
First example, if an OFW works in HongKong but her beneficiaries live in the Philippines, but life insurance in the Philippines.
Second example, if an OFW family (parents and kids) lives in Singapore but will likely go back to the Philippines in the event of one spouse’s death, get life insurance based in the Philippines.
Last example, if an OFW family lives in the US and plans to stay there even if one spouse dies, get life insurance in the US.
6.) What else to consider when shopping for Term Life Insurance?
- Comparison shop – always shop around to get the best deal
- Buy Term Life Insurance – this gives you the most coverage for the least cost
- Buy level-premium policy – this pegs your annual premiums to a fixed amount over the entire term of 5 to 20 or more years. It turns out cheap in the long run.
- Buy Early – the younger you are, the lower your premiums. This is especially good if you are able to secure a level-premium policy.
- Buy at “break point” – e.g. for a premium of Php39,000 you could get P390,000 death benefit. Check what a premium of Php40,000 will get you. It might get you P500,000 which is better value for your money.
- Pay once or once a year – if you can afford it, buy with a single-premium payment mode. Otherwise, pay via annual premium. Annual premiums are cheaper than monthly or quarterly premiums. Use the separate deposit account technique to accumulate enough to pay an annual premium.
Lastly, stay healthy and reduce the risk of death. Take care of your body, mind and heart and shower the people you love with love!
To end, here are some links to help you in your search for the right life insurance for you:
- “Get a Financial Life” by Beth Kobliner
- Investopedia: Buying Life Insurance
- MoneySense Magazine July-August 2007 issue
living the life
eOFW is not related in any way to the companies featured in our articles except otherwise specified. We feature different companies for the information of our readers to help them better find services that suit their needs.
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